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Understanding Broadcasters v. Aereo

Submitted on March 18, 2014

Understanding Broadcasters v. Aereo

In a few weeks (April 22, to be exact), the Supreme Court of the United States will hear oral arguments in one of the most important intellectual property cases in recent years. Depending on who you believe, the case could endanger or even destroy free over-the-air broadcasting or it could imperil the development of cloud computing, threatening the very underpinnings of the emerging digital economy. Or perhaps neither, since this case, American Broadcasting Companies, Inc. v. Aereo, Inc., has been the object of heated hyperbole on all sides.

Behind the dry and highly technical arguments in this case is a major controversy over whether Aereo, a small start-up with a few thousand subscribers, can capture and distribute over-the-air TV signals via the Internet.

First, some history.

In 1947, John and Margaret Walson began selling TV sets in Mahanoy City, Pennsylvania. Because reception was difficult in the area’s hilly terrain, he mounted an antenna on a nearby mountaintop so he could demonstrate the sets in his store. Before long, he hooked up a few neighbors, and in 1948 started a business selling hookups to others in the town. One might think that broadcasters would welcome anything that increased the number of viewers who could view their commercials, but the broadcasters (joined by program producers) instead declared two decades of legal war over what they viewed as the “theft” of their signals. Ultimately, in two decisions, Fortnightly Corp. v. United Artists Corp. (1968) (Fortnightly), and Teleprompter Corp. v. Columbia Broadcasting System, Inc. (1974) (Teleprompter), the Supreme Court ruled that cable systems were essentially "rabbit ear" antennae with very long cords, albeit shared with many customers. This, the Court said, did not infringe on the broadcasters’ and producers’ copyrights.

After years of lobbying and political maneuvering, in 1976 Congress effectively rejected the Supreme Court’s decisions by imposing a complicated scheme under which cable operators received the right to "retransmit" (an important word here) broadcasters’ signals (a "compulsory license") to multiple customers, but were obligated to pay fees as determined by a new Copyright Royalty Tribunal.

That brings us to Aereo. Broadcasters argue that Aereo is like a cable operator and is thus required to pay copyright royalties. Aereo maintains that its reception and delivery of broadcasters’ signals falls outside the terms of the 1976 amendments to the Copyright Act, and that it does not owe royalties. The case turns on highly technical readings of the law, which I will address after discussing the context in which it arises.

Aereo’s argument is based on the technology it uses. While cable systems take in a signal from a single receiver or feed and redistribute that feed to all their customers, Aereo uses patented technology employing thousands of tiny, dime-sized antennae. Each customer signing on to Aereo’s website is assigned a particular antenna, the signal of which is stored on a hard drive in a file dedicated only to that user. Because of this, Aereo says it is not functioning like a cable operator, but merely as an extended custom "rabbit ears" for each individual user.

If Aereo’s argument sounds like it is attempting a rather obvious legal ploy, that is because it is. Aereo readily admits that it invented the tiny antennae precisely because it enables Aereo to avoid paying royalties. Nor is it an accident that Aereo introduced its service in New York, to take advantage of a legal precedent in the United States Court of Appeals for the Second Circuit, which includes New York. That case, Cartoon Network LP, LLLP v. CSC Holdings, Inc., is universally referred to as "the Cablevision case." (Don’t ask.) In Cablevision, the Court held that use of a cloud-based DVR system (i.e., a technology that stores video programming on a remote hard drive and delivers it to cable subscribers on request) does not infringe producers’ copyright because it is not a “public performance.” Cablevision’s argument turned on the fact that each time a subscriber identified a program for copying or playback, an individual copy was made and stored on Cablevision’s server. Aereo convinced the Court of Appeals panel (over a vigorous dissent) that it was simply doing the same thing.

Now to the law.

The issue in this case was itself the subject of dispute. As specified by the Supreme Court, it is:

Whether a company "publicly performs" a copyrighted television program when it retransmits a broadcast of that program to thousands of paid subscribers over the Internet.

Aereo starts its defense in the Supreme Court at a disadvantage. It had asked the Supreme Court to define the question before it more broadly:

Whether Aereo 'perform[s] publicly,' under Sections 101 and 106 of the Copyright Act, by supplying remote equipment that allows a consumer to tune an individual, remotely located antenna to a publicly accessible, over-the-air broadcast television signal, use a remote digital video recorder to make a personal recording from that signal, and then watch that recording.

This formulation, which the Court rejected in favor of the broadcasters’ definition of the issue, would have put the focus on subscribers’ right to get TV shows using a technology that is essentially the same as recording a show on a home VCR or DVR.

The issue definition is important because a copyright holder has the exclusive right "to perform the copyrighted work publicly." To overturn the Fortnightly and Teleprompter decisions, the 1976 Copyright Act defined public performance to mean

to transmit or otherwise communicate a performance or display of the work … to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

The broadcasters argue that the Second Circuit misread the language of the 1976 amendments and misconstrued the Congressional intent in enacting those changes. They also note that Congress broadly defined the term "transmit" ("communicate … by any device or process whereby images or sounds are received beyond the place from which they are sent") and defined the term "device" to include technology "now known or later developed."

One problem the broadcasters face is that the Copyright Act sets forth when a retransmission of a signal is "publicly performed," but the word 'public' is not itself expressly defined. They attack Cablevision by arguing that cable subscribers are unquestionably part of "the public" because retransmission of broadcast signals to them is subject to royalties. They also say that, since Congress said that a performance can be "to the public" regardless of whether "the members of the public capable of receiving the performance … receive it in the same place or in separate places and at the same time or at different times," the fact that the performance is delivered to individual "members of the public" through multiple transmissions to "separate places … or at different times," does not change its public character.

The Second Circuit applied Cablevision, saying that broadcasters’ reading of the term 'public' didn’t matter here, because "the relevant inquiry... is the potential audience of a particular transmission, not the potential audience for the underlying work or the particular performance of that work being transmitted." The broadcasters say that Cablevision was wrongly decided. They quote from the dissenting judge, who wrote that Cablevision "conflated the phrase 'performance or display' with the term 'transmission,' shifting the focus of the inquiry from whether the transmitter’s audience receives the same content to whether it receives the same transmission." Properly reading the law, the dissenting judge said, "the public must be capable of receiving the performance or display, not the transmission. All that matters is whether the transmitter is enabling members of the public to receive the copyrighted work embodied in the performance or display not whether they can receive the same legally insignificant transmission." (Emphasis in the original.)

Despite the narrow definition of the issue posited by the Supreme Court, Aereo nonetheless hangs its hat on the Cablevision precedent with its emphasis of how the transmission is used, and calls for the Supreme Court to adopt it. Aereo maintains that its technology creates an individual digital stream and its storage or playback is controlled entirely by the user. It says that the Second Circuit correctly held that, under the statute, the "performance" and the "transmission" are the same thing because it says that "[t]o 'transmit' a performance . . . is to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent." Aereo says that the statute "specifies that a performance is 'to the public' so long as 'members of the public [are] capable of receiving the performance.' That provision would make no sense if the performance in question were some other, underlying performance rather than the transmission itself."

Although this case is supposed to be about how to apply some ambiguous terms in a law to technologies developed decades after the law was enacted, both sides have attempted to sway the Supreme Court with rather dire warnings about the impact of its holding. The broadcasters say that Aereo’s position would allow it to supply a single broadcaster’s signal all over the world in disregard of the fact that broadcasters have paid billions of dollars for program rights. They say that an adverse ruling would enable cable companies to employ Aereo’s technology to avoid paying fees for "retransmission rights" now required of them. This, they say, would destroy their very business model and they warn that they "may be forced to reconsider whether they can afford to continue making the same quantity and quality of programming available to the public for free in the first place."

Not to be outdone, the tech community warns that rejection of the Cablevision precedent endangers the entire business model of cloud computing, and all the economic growth and innovation it will bring. Although friend of the court briefs supporting Aereo are not due until April 2, the Internet is rife with concerns that overturning Cablevision could cripple online backup and storage services. They worry that each time a user employs an online service to stream one’s own, lawfully acquired content to oneself from a remote location would become a public performance, and hence, an infringing use. They fear that use of a cloud based service like Dropbox to store and share a copyrighted work on a user’s tablet and desktop computers would be rendered unlawful.

One of the most important developments in the Aereo case was the decision of the Department of Justice to file a friend of the court brief in support of the broadcasters. (Solicitor General Donald Verrilli did not sign the United States’ brief because his former law firm represents some of the broadcasters.) In response to the tech community’s arguments, the Justice Department attempts to assure the Court that it can overturn Cablevision without threatening cloud computing. It argues that Cablevision’s reasoning was wrong, but that the Second Circuit could have reached the same result in a different manner. It stressed the fact that cable customers have previously paid Cablevision to store and deliver programming for which royalties have been paid (by Cablevision), whereas Aereo customers have not.

The Aereo case is not only important, but it is unusual in several respects. It reached the Supreme Court after the lower courts issued preliminary rulings without a trial. The Court typically prefers a fully-developed case with a complete trial record. One reason the Court probably agreed to hear the case at this stage is because Aereo took the rare position of agreeing with the broadcasters that the case is so important that the Supreme Court should decide the matter now. (The party that wins below almost always argues that the lower court’s decision was correct and should not be disturbed.)

There is one more intriguing aspect of the case. Evidently because he owns stock in an affected company, Justice Alito has so far recused himself from all aspects of the case. This opens the possibility of a 4-4 deadlock, under which Aereo would be declared the winner, but there would be no Supreme Court precedent, and other lower courts would be free to rule differently than the Second Circuit. That outcome would guarantee controversy for years to come.

Andrew Jay Schwartzman is the Benton Senior Counselor at the Public Interest Communications Law Project at Georgetown University Law Center's Institute for Public Representation (IPR).